All I got for Christmas was deal spam

Back in September I wrote about false – or what I prefer to call faulty – email advertising in the area of marketing private placement deals online. Since that time, I’ve been paying close attention to email solicitations and I’ve been doing my best to call out “bullshit” on marketing rhetoric at industry events or on phone calls with sleazy list-brokers.

I’m prone to introspection so before I put the pen to paper this week, I asked myself this question: Why am I so sensitive about this issue and why am I dredging this issue up again?

The trigger in all this was that earlier this week I received an email that really bugged me. It wasn’t just faulty advertising, but annoying advertising. One of the deal portals sent out an email – presumably to its entire list – which advertised how I “missed out” on a supposedly great deal they just closed. It got me thinking about how aggressive and strange online deal marketing has become and how some of the tactics are downright ridiculous. Did I miss a great deal? OK, sure. Whatever.

In my conversations with companies raising capital, I continue to get feedback that many of them are advised by a deal portal to embellish financial performance and/or traction and/or other aspects of their deal in order to generate investor interest. I’m annoyed by this and you should be too.

Above anything else though, the email marketing that really makes me nuts is when a portal represents how much “investment” has gone into a deal. I have the word “investment” in quotes here because I’m always left to wonder: Is that really an investment? Or is that a non-binding commitment to make an investment? There’s a big difference. One represents actual cash, the other represents only an indication of interest.

In a phone conversation I had this week with someone who provides backend technology to deal portals, I was told that in cases where the deal portal first collects (and advertises) non-binding commitments and then circles back with investors to close on those commitments, somewhere between 60% and 90% of the money never comes in. If these are accurate estimates (which I believe they are considering my source is the one who keeps tally), just consider how disturbing the marketing message is when you take into account what’s advertised versus what’s reality.

To my knowledge, the only significant study in the area of deal marketing via email was conducted by AngelList’s COO Kevin Laws in conjunction with Stanford University researchers Shai Bernstein and Arthur Korteweg in March 2014. Some of the results of that study are summarized below (which is straight from a PPT slide I used in Dealflow’s pitch deck).

The study was designed to test the thesis that early-stage investors were most interested in a startup founder’s background. But for us at Dealflow, the study validated our own thesis that you can have effective email marketing of investment opportunities so long as the email recipients were well targeted.

In the AngelList study, the 4,494 email recipients were all interested in startup investments. They observed an open rate of 48.3%, click rate of 16.45% (opens that clicked “view” on a deal to get more information), conversion rate of 15.1% (views that requested an introduction to the startup), and an investment rate of 2.98% (2.98% of clicks resulted in reported investments). To be clear, these aren’t good statistics – these are great statistics. But to obtain these statistics, you need to start out with a targeted list of recipients who actually want your email. That means no email blasting and for cryin’ out loud… no sleazy list brokers!

Think about the marketing tactics of most deal portals and contrast that to the marketing tactics of Amazon. Portals = emailing every deal regardless of stage, sector, or type, to every person on their distribution list. Amazon = emailing recommendations based on prior purchases or analytics derived from a person’s website activity.

Now combine carpet-bombing email strategies with faulty advertising and what do you get? You get list fatigue, user disengagement, and eventually, mistrust.

As I’ve said before, the same standards of straightforwardness on deal marketing need to apply to the marketing of online deal platforms themselves. If you’re a private placement broker with a website that’s offering securities in reliance on the traditional Rule 506(b) under Reg D, please don’t hold yourself out as helping companies raise money using “crowdfunding.”

Steven is founder and chief executive officer of Dealflow and is responsible for corporate strategy.

Steven has extensive operating experience and startup success in the areas of software development, financial database technologies, and digital media.

He has also advised many companies and hedge funds on strategies to raise capital.

Steven has a BS in psychology from George Washington University and both an MBA in finance and a graduate degree in computer communications and networks from the Lubin School of Business at Pace University.

Steven is co-author and editor of six books including "PIPEs: A Guide to Private Investments in Public Equity"​ and "The Issuer's Guide to PIPEs"​ (Bloomberg Press), and was a contributor to "Reverse Mergers: Taking A Company Public Without An IPO"​ (Bloomberg Press).